Pricing Billable Hours as a Consultant

Author : Alex Murphy
Published: May 05, 2012

How should Consultants charge their clients for their advising? Establishing the pricing of contracts is a determining factor for consulting firms as it will directly impact their positioning and bottom-line. Two key variables come into play: the hourly rate at which to bill clients and the structure of the contract.

Determining an hourly rate

The proper amount to charge clients should be calculated based on two factors: the market rate and how much you can afford to be paid.

It’s a good idea to know what rates your competitors are offering. Take a sniff test, try different rates, discuss your pricing with clients and co-workers to ascertain the appropriate pricing, then modify accordingly.

Keep in mind that lowering your rate can be a double edge sword.

Choosing a Pay Structure

The pricing scheme you choose should largely depend on the type of case you undertake.

• Pay As You Go contract: hourly rate x number of hours spent on the project

• Project-based fees: hourly rate x fixed estimated time required to complete the project

• Contingency basis: fixed rate payable upon results of the contract. This is the riskiest scheme as the client will only pay if the outcome is successful.

• Retainers: this scheme fits well on-going projects. The client will basically pay you a pre established fee based on your hourly rate and the time spent on his case on a monthly basis.

• Value-based billing: the client will be charged a percent of the increase in profit you have allowed him to make.

When Should Consultants Bill Clients

When possible, request payment before you do any work, for example, asking half up front and weekly invoices until completion. Asking your clients for payment in advance should help minimize the risk of delayed payments. I have had numerous experiences with clients stretching out payment to 90, 120 and even 180 days. You can give incentives to pay up front. For instance, offer a small discount to clients paying in advance. Whatever you do, you should always include your billing conditions in the proposal and in the terms of your contracts. Make sure to discuss travelling expenses too.

What billing practices do you use? Has it been successful? What challenges have you encountered so far? Start on a discussion in the comments.

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